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Turn off that recorder: Finra says arbitration hearings off limits

Nov 27, 2012 @ 3:21 pm

By Dan Jamieson

finra, arbitration
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The Financial Industry Regulatory Authority Inc. plans to warn parties in its arbitration hearings against using electronic devices to secretly record and transmit the proceedings.

The warning was sparked by complaints from the Securities Experts' Roundtable Inc., a group of expert witnesses, about several instances of “electronic eavesdropping” where witnesses were surreptitiously recorded and their testimony apparently made available to others outside the hearing rooms.

In a September letter to Finra, the Roundtable described three instances in which its members had encountered eavesdropping.

The group asked Finra to create policies and issue guidance about the practice.

“It's a private forum,” Jeffrey Schaff, president of the Roundtable and founder of Ardor Fiduciary Services Ltd. in Northfield, Ill., said in an interview. “It's a controlled forum [where] people sign in, sign out and there are some facts [presented] that some witnesses are not allowed to hear.”

In its letter, the Roundtable also noted that allowing outsiders to view a hearing could give one of the parties the ability to benefit from the assistance of unnamed co-counsel.

Finra told Mr. Schaff in a letter this month that the regulator would be “educating our [arbitrators] about this concern” in an upcoming article in its “Neutral Corner” newsletter for arbitrators and mediators.

The article should be out by the March issue, Finra spokeswoman Michelle Ong wrote in an email.

“Anything that would give an unfair advantage to one side would not be allowed” by arbitrators, Ms. Ong said. In its letter, Finra also said it will consider changes to the opening script that arbitrators use to “alert parties to the importance of seeking approval of the other participants and the arbitrators before attempting to transmit or record the proceedings.”

Mr. Schaff said he welcomed Finra's response.

“When you're at hearing, you're not paying attention to what the parties are doing with their electronic devices,” he said.

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